PSB Portfolio Update July 2013

July 18, 2013

Are The Bulls In Control?

Last month, we wondered whether volatility had peaked in the wake of Bernanke’s tapering comments.  Well, that certainly appears to be the case – at least in the short-term.

Since last month’s update, volatility levels have fallen back down to bull market levels.  In fact, the VIX (S&P 500 Volatility Index) is back below $14 as of this writing.  That’s a signal investors aren’t overly concerned about a major selloff.

This week, Bernanke soothed fears of an early end (or early tapering) to its bond buying program.  He said the Fed is going to respond to the data, and the stimulus program is not on a preset course.

That’s certainly good news for investors who were worried about the punch bowl being taken away too early.  It seems the Fed is going to legitimately wait for economic growth to reach at or near pre-recession levels, as well as unemployment.

And while the economy is improving, it still has a long way to go to get back to the good times we’re used to.

In the meantime, earnings season has begun.  The next couple weeks will bring a number of major earnings reports.  If no macro news surfaces to move the market significantly, we could see some swings in stocks based on how earnings shake out.

As for our portfolio, we’ll continue to stay the course and find good, undervalued companies to invest in.

That being said, let’s move on to the position updates.

Position Updates

Please Note:  We don’t necessarily update every open position each month.  We focus on the positions experiencing significant news, notable price movement, or a change in recommendation.  Please refer to the Performance page on our website for our current buy, sell, or hold recommendation for any positions not mentioned in the Update.

. . . . Iridium Communications (NASDAQ: IRDM) – Hold

Iridium shares have been on a very nice run since mid-June.  With the strong move over the last few weeks, our position is now over a 40% winner.

So what happened last month to spark the climb?

The company’s Aireon unit – the developer of the world’s first satellite-based air traffic surveillance system – signed a huge deal with ITT Exelis (XLS).  The deal is worth $42 million over 17 years.

Not only is this a massive deal in its own right, but it’s also a sign of what IRDM could be capable of achieving with the Aireon product line.

This could be the start of very good things for Iridium.  Let’s continue holding our shares.

. . . . Renewable Energy Group (NASDAQ: REGI) – Hold

REGI continues to be one of our best performing stocks.  As of this writing, our position is up nearly 90%.  And, our stake has recently been as high as a 112% winner.

The company is thriving as green energy solutions gain momentum economically and politically.  What’s more, REGI recently completed a $21 million upgrade to its Minnesota biodiesel plant.

With the upgrades in place, the plant will be able to convert a wide variety of locally-sourced byproducts into fuel, such as animal fats and grease.  Since these byproducts are low cost, REGI is sure to earn nice margins as the plant kicks into production gear.

Despite the nice run, we’re not ready to take profits on REGI yet.  Hang on to your shares for bigger gains ahead.

. . . . Crimson Exploration (NASDAQ: CXPO) – Hold

CXPO has had a recent surge in its share price and is now a small winner for us.

The company is expected to merge with Contango Oil & Gas (MCF) later in the year. Shareholders will receive .08288 shares of MCF for every share of CXPO.  That currently works out to roughly $3.22 a share.

However, Crimson recently completed its first Buda well (which relies on natural fractures so is cheap to develop).  The well is expected to produce roughly 761 barrels of oil, 56 barrels of natural gas liquids, and 253,000 cubic feet of natural gas per day.

That kind of production could spark interest in CXPO and raise their acquisition price.  As the deal with MCF isn’t completed, there’s still time for competing bids to take place.

We haven’t hit our buy up to price yet, but with the merger outcome uncertain, we’re moving the position to hold.  Continue holding the shares for potential upside while we wait to see what develops on the acquisition front.

Action To Take

• Move Crimson Exploration (NASDAQ: CXPO) from Buy to Hold

 

Category: PSB Portfolio Updates